The advertising business drives revenue growth, is optimistic that profitability will continue to increase, and maintain a “buy” rating
The company achieved main business revenue of 113.47 billion yuan (+20.5% year-on-year) in 2023, mainly due to a 23.0% year-on-year increase in online marketing service revenue to 60.3 billion yuan. The company's gross margin was 50.6% (year-on-year +5.9pct), and adjusted net profit was 10.271 billion yuan (year-on-year loss to profit); in 2023Q4, the company achieved operating income of 32,561 billion yuan (+15.1% YoY, +16.5% month-on-month), gross margin of 53.1% (+7.6pct YoY, +1.4pct month-on-month), and adjusted net profit of 4.362 billion yuan (YoY to profit, +37.5% month-on-month). The main companies achieved significant profit side improvement. Based on expectations that the company's commercialization process will continue to advance, we maintain 2024-2025 and add a profit forecast for 2026. We expect the company's net profit for 2024/2025/2026 to be 74.97/86.15/9.372 billion yuan, corresponding EPS of 1.7/2.0/2.2 yuan, respectively, and current stock price corresponding to PE is 26.2/22.8/20.9 times, respectively. We are optimistic that the company's profitability will continue to improve and maintain the “buy” rating.
Platform traffic is further expanded, and the highly active user ecosystem drives online marketing and e-commerce revenue growth
Thanks to high-quality content distribution and efficient operation strategies, platform traffic was further expanded. The daily activity of the 2023Q4 platform reached 383 million (+4.5% year over year) and 700 million monthly activity (+9.4% year over year). User stickiness was further increased, and the average daily usage time of Nikkatsu was 124.5 minutes. Benefiting from user growth and the continued abundance of pan-shelf shopping scenarios, the e-commerce ecosystem is prosperous. In 2023, the e-commerce GMV reached 1184.371 billion yuan (+31.4% year over year), the average number of monthly paying 2023Q4 e-commerce users exceeded 130 million, and the monthly active penetration rate reached 18.6%. We are optimistic that the company will drive online marketing and e-commerce revenue growth by creating a highly active user ecosystem, and continue to improve commercial monetization efficiency.
“Hot content+quality marketing”, the commercialization process of the short drama is smooth
The supply quantity and quality of skits continued to increase. By the end of 2023, the total number of Kuaishou Starlight skits launched was nearly 1,000, and more than 300 short dramas were broadcast over 100 million. The average daily DAU of Kuaishou skits reached 270 million, and 2023Q4 had 94 million users watching more than 10 episodes of skits every day, an increase of 52.6% over the previous year. Massive, high-activity, and high-engagement skit users drove a smooth commercialization process. The 2023Q4 Kuaishou Starlight skit's investment revenue increased more than 6 times month-on-month, and the marketing investment consumption of the paid skit industry increased by more than 300% year-on-year. We believe that the company will continue to implement the “speed run” strategy for skits, promote skits to participate in investment promotion, build more premium content IPs, strengthen the skit payment link, shape a healthy ecosystem of skit marketing with “popular content+high-quality marketing”, and open up room for growth.
Risk warning: advertising commercialization is less efficient than expected, user growth is slowing down, competition in the short video industry is intensifying, etc.